Retail sales in the United States grew steadily in March, driven by record-high gasoline prices, but consumers are beginning to feel the effects of rising inflation, with online spending falling for the first time in more than a year.

Consumer spending picked up in the first quarter, according to a report released by the Commerce Department on Thursday, which also showed better retail sales growth in February than previously assumed.

A tighter labour market is driving up salaries, while enormous savings built during the pandemic are helping to keep inflation at bay. In March, annual inflation reached its highest level in more than 40 years, while there are indicators that pricing pressures have peaked and may begin to ease gradually.

“The report still reveals the resilience of consumer spending,” said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina. “There is no doubt households are feeling the pinch from skyrocketing prices across an array of products. But there are signs that pandemic-related inflation is beginning to ease.”

Last month, retail sales increased by 0.5 per cent. Sales for February were revised higher, showing an increase of 0.8 per cent rather than the previously reported 0.3 per cent. Retail sales were expected to rise 0.6 per cent, according to economists polled by Reuters, with expectations ranging from a 0.3 per cent decrease to a 2.2 per cent increase.

On a year-over-year basis, retail sales, which largely consist of products, increased by 6.9%. They are not inflation-adjusted.

Service station sales increased by 8.9 per cent in March, accounting for the majority of the rise in sale revenues. In March, consumer prices rose for the first time in 16-and-a-half years, as Russia’s war against Ukraine drove up the price of fuel in the United States to new highs. Prices at the pump on average soared to an all-time high of $4.33 per gallon in March, according to AAA.

Retail sales dipped 0.3 per cent excluding gasoline.

Despite the fact that gasoline prices have now fallen to an average of $4.074 per gallon, high inflation is expected to continue. Import prices rose 2.6 percent last month, the most since April 2011, according to a separate Labor Department report released on Thursday. Import prices had increased 1.6 percent in February.

The stock market on Wall Street was down. The greenback gained ground versus a basket of currencies. Treasury prices in the United States have dropped.

Consumers’ purchasing power is being eroded by rising prices, but rising earnings are helping to mitigate some of the damage.

The unemployment rate is at a two-year low of 3.6 per cent, and at the end of February, there were a near-record 11.3 million job opportunities, making it easier for some cash-strapped Americans to take on a second job or work extra shifts.

During the COVID-19 pandemic, consumers also collected more than $2 trillion in surplus savings.

Initial claims for state unemployment benefits jumped 18,000 to a still-low seasonally adjusted 185,000 for the week ended April 9, according to a separate Labor Department report released on Thursday. For the most recent week, economists predicted 171,000 applications.

Consumer morale has risen from a decade low in early April, thanks to falling fuel costs and a strengthening labour market.

Some customers are able to take on additional debt as a result of improved employment security. Clothing store sales increased by 2.6 per cent last month. Building material, garden equipment, and supplies stores, as well as furniture, food, and electronics and appliance retailers, all saw rises in receipts.

Sporting goods, hobby, musical instrument, and book retailers had a 3.3 per cent increase in sales. The single services category in the retail sales report, receipts at bars and restaurants, increased by 1.0 per cent. Consumer spending is being bolstered by increased demand for services such as air travel and hotel accommodations. This comes after the lifting of pandemic restrictions.

However, due to continued vehicle shortages, auto dealership sales declined 1.9 per cent.

The first back-to-back loss since the last two months of 2020, online store sales fell 6.4 per cent after falling 3.5 per cent in February, which some economists ascribed to stretched household budgets due to the gasoline price shock. Others attributed it to changing seasonal trends.

From a high of $100.0 billion in January to $90.350 billion in March, online retail sales have fallen. There are concerns that higher interest rates, which are being used by the Federal Reserve to combat inflation, may reduce demand in the months ahead.

“If previous environments are any indication, the latter half of 2022 could see a slowdown in consumer demand as the Fed tries to contain elevated price levels,” said Peter Essele, head of portfolio management at Commonwealth Financial Network.

Retail sales fell 0.1 per cent in March, excluding vehicles, gasoline, building materials, and food services. These so-called core retail sales fell 0.9 per cent instead of 1.2 per cent as previously reported in February, according to revised data.

Core retail sales are the most closely related to the consumer expenditure component of the GDP. Following an upward revision in February and a small drop in March, some economists raised their first-quarter consumer spending and GDP growth forecasts. Goldman Sachs increased their GDP growth forecast from 1.0 per cent to 1.5 per cent. In the fourth quarter, the GDP expanded at a healthy 6.9 per cent.

“Today’s report continues to reflect strong consumer demand in the first quarter, but we see headwinds from the oil price shock combined with tighter monetary policy lowering real consumer spending growth later this year and next,” said Ellen Zentner, chief U.S. economist at Morgan Stanley in New York.

(Adapted from Latestly.com)

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